By Ryan C. Wood
When you file for Chapter 7 bankruptcy, all your dischargeable unsecured debt will be discharged once the judge signs the Order of Discharge. This means that your personal liabilities to repay those debts are discharged, and you are no longer obligated to pay those debts. If you have a secured debt, however (i.e. houses, cars, etc.), then although your personal liability to repay that debt is discharged, you would need to continue paying on it to keep that property, otherwise the secured creditor could repossess or foreclose on that property.
One of the things that your secured creditors may want you to sign after you have filed a bankruptcy case is a reaffirmation agreement. A reaffirmation agreement is basically a new contract between you and the creditor indicating that you promise to continue making payments on that debt. Since it is a contract that you have signed after your bankruptcy case, any liabilities arising out of the default of the debt is not discharged in your bankruptcy case. The most usual type of reaffirmation agreements pertain to vehicles. If you default on the payments, the creditor can repossess your vehicle and go after you for any deficiencies. If you do not sign a reaffirmation agreement and you default on the debt, then the creditor cannot go after you for any deficiencies, as your personal liability was discharged in the bankruptcy case.
If you do decide to sign a reaffirmation agreement, it needs to be filed with the court. There may be a hearing on the reaffirmation agreement if you are not represented by an attorney. If you have signed a reaffirmation agreement and changed your mind, you can cancel the agreement within 60 days or until the discharge of your bankruptcy case, whichever is later. Since the future is uncertain, it may not be a good idea to sign a reaffirmation agreement unless you are absolutely certain that your job is stable or you receive favorable terms in the reaffirmation agreement, such as decreased interest rate or reduced monthly payments. Otherwise, if you sign a reaffirmation agreement, and then you lose your job in the future, or receive a pay cut and are unable to repay the debt, then you will lose your property still owe on the deficiencies on the property.
There are other options other than signing a reaffirmation agreement in your Chapter 7 bankruptcy case, including: surrendering your vehicle, redeeming your vehicle, or retaining your vehicle and paying the secured debt. If you surrender your vehicle, any deficiency will be discharged in your bankruptcy case.
Redeeming your property is when you pay the fair market value for your property rather than what you actually owe. This may be beneficial if the value of your vehicle is significantly less than what you owe. The only issue with redeeming your vehicle is that you have to pay the full amount of the fair market value of your vehicle.
The other option is to retain your vehicle and continue making payments on it. Most creditors will continue to accept payment on your vehicle and they will not repossess your vehicle if you are current on the payments. Then, if you are unable to make your vehicle payment, then your vehicle will be repossessed, but you will not owe any deficiencies because you did not sign a reaffirmation agreement. However, one of the risks in this option is that some creditors that will repossess your car even if you are current on the vehicle if you do not sign a reaffirmation agreement.
If you have any questions regarding which options to choose to retain your vehicle, please contact us at Fremont bankruptcy attorney or Hayward bankruptcy attorney at 877-9NEW-LIFE or 877-963-9543 today.